Mumbai: Higher expenditure on salaries and farm loan waivers, coupled with a revenue shortfall on GST implementation, led to a slippage of 0.35 per cent in states' fiscal targets to 3.1 per cent in 2017-18, the RBI said on Thursday.

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This is the third consecutive year where the states have failed to meet their gross fiscal deficit (GFD) target, the central bank said, adding this comes despite expectations of an improvement on higher devolution from the Centre.

For FY19, states are hoping for a 0.2 per cent revenue surplus as against a revenue deficit of 0.4 per cent as per the revised estimates, which will lead to an overall GFD of 2.6 percent, against 3.1 percent in FY18, it said.

At a country-wide level, farm loan waivers alone contributed to a third of the overall slippage worries, with a 0.05 per cent slippage of the overall 0.13 per cent on revenue expenditure, the RBI said in its study on state finances based on state budgets.

Hikes in salaries, mainly as a higher proportion of states implement proposals in line with the seventh pay panel, resulted in 0.09 per cent slippage on the revenue expenditure.

There was a 0.27 per cent impact in the GFD on account of the revenue shortfall, and the study attributed the same to implementation of the goods and services tax (GST).

"The decline in states' tax revenues is essentially associated with the pending accounting issues related to GST implementation," it said.Also Read: Facebook friend kills man for refusing sex in AP However, in his foreword, RBI's executive director Michael Patra said that as the GST stabilises, it should boost states' revenue capacity and support fiscal consolidation.

He, however, asked states to be more cognizant on the expenditure management in the future as "visible fiscal pressures" are emerging for several states on pay revisions, interest payments and farm loan waivers.